Monthly Archives: March 2021

Congress has tried in many ways to help employers through the COVID-19 pandemic. The headline news was the Payroll Protection Program, passed as part of the CARES Act last year. But, the Taxpayer Certainty and Disaster Relief Act of 2020, enacted on December 27, 2020, made some changes to the employee retention tax credits previously available under the CARES Act, including extending the Employee Retention Credit (ERC) through June 30, 2021.

With the new changes, employers, including Estate Planning attorneys, may be able to claim a refundable credit against the employer’s share of the Social Security tax. That credit could be up to a maximum of $7,000 per employee per calendar quarter, for a total of $14,000 in 2021. Under current legislation, the credit is only applicable through June 30, 2021. The credit is 70% of qualifying wages up to $10,000 per employee per quarter. The credit is refundable. In other words, even if you don’t owe that much in taxes, you’d still get a refund of that amount.

Employers are eligible if they operated a business between January 1 through June 30, 2021, and experienced either:

1. A full or partial suspension of the operation of their trade or business during this period because of governmental orders limiting commerce, travel, or group meetings due to COVID-19, or
2. A decline in gross receipts in a calendar quarter in 2021 where the gross receipts of that calendar quarter are less than 80% of the gross receipts in the same calendar quarter in 2019 (to be eligible based on a decline in gross receipts in 2020 the gross receipts were required to be less than 50%).

If your business didn’t exist in 2019, you’d use the corresponding quarter in 2020 for the comparison.

According to the IRS, “for an employer that averaged 500 or fewer full-time employees in 2019, qualified wages are generally those wages paid to all employees during a period that operations were fully or partially suspended or during the quarter that the employer had a decline in gross receipts regardless of whether the employees are providing services.”

Further, the law now allows employers who received Paycheck Protection Program (PPP) loans to claim the ERC for qualified wages that are not treated as payroll costs in obtaining forgiveness of the PPP loan. In other words, you can count them as long as you’re not double-dipping.

You can obtain the credit before filing your employment tax return by reducing employment tax deposits. Small employers (those under 500 full-time employees in 2019) may request advance payment of the credit (subject to certain limits) on Form 7200, Advance of Employer Credits Due to Covid-19, after reducing deposits. Larger employers don’t qualify for this advancement.

If you’d like more information, see this announcement from the IRS (https://www.irs.gov/newsroom/new-law-extends-covid-tax-credit-for-employers-who-keep-workers-on-payroll).

Further, the IRS has extended the deadline for the filing of individual income taxes to May 17, 2021.

It’s difficult to even think that someone might not want to accept inherited assets. But sometimes clients don’t need any more assets and a newfound inheritance simply may compound their estate tax issues.

A “qualified disclaimer” is a creature of statute. It’s found in Section 2518 of the Code. If you meet the requirements, then the disclaimant is treated as having predeceased the decedent and it’s not considered to be a gift by them and won’t use any of the erstwhile recipient’s gift/estate tax exclusion.

Section 2518 has several requirements:

1. The refusal must be in writing,
2. The refusal must be received by the transferor of the interest (or the representative or legal title holder) within 9 months of the date of death or when the instrument creating the transfer became irrevocable (or the date the recipient achieves age 21),
3. They must not have accepted any of the benefits of the property, and
4. The interest must pass without direction to the decedent’s spouse or someone other than the disclaimant.

Let’s look at a quick example:

Granny leaves a Will leaving Blackacre to John. The terms of the Will provide that if John predeceases Granny, the bequest goes to John’s daughter, Betty. Blackacre is worth $3 million. John already has used all of his exclusion. He’d like to see Blackacre go to his daughter, Betty. If John accepts Blackacre and makes a gift of it to Betty, he’d be making a taxable gift of $3 million, which would incur a $1.2 million gift tax. If John does a timely qualified disclaimer, Blackacre would pass as though John predeceased Granny. Since Granny’s Will provides that the property would go to Betty if he predeceased her, this would accomplish John’s wishes without needing to direct where it goes. This saves John $1.2 million in these circumstances.

If you’re contemplating a disclaimer, it’s vital to map out where the disclaimed property would go after the disclaimer. Sometimes this can be very complicated. But it’s absolutely essential since the disclaimant has no control over it. It’s somewhat like releasing water from a dam. You need to know what the course of the river is before you release the water. Sometimes it may be possible to change the course of the river by doing a double disclaimer or some other mechanism.

After you’re confident the disclaimed property would go where intended, it’s imperative you follow the requirements of Section 2518 to the letter. For example, it’s impossible to get an extension on the 9-month deadline for a disclaimer. It doesn’t matter if the disclaimant were sick or had extenuating circumstances. The deadline cannot be changed.

Even wealthy clients are often most concerned about the possessions which they have around them. They may have financial accounts with lots of zeros, yet they are most concerned about the things which they have collected or been given over the years. At first glance, this may not make much sense because the items may not be of great financial value. But people may have developed great emotional attachment to these items. In fact, there is a psychology of stuff and the attachment people have to their stuff. (In the extreme, it manifests as hoarding.)

Perhaps it’s the baseball card collection which he started when he was six years old. Perhaps it’s the stamp collection her father started when he was a boy. Perhaps it’s the coin collection she started when she was little when her grandmother gave her a silver dollar for Christmas. Perhaps it’s the drawings she did while recovering from a stroke. Some of these items might have financial value while others might have only emotional value.

What’s the best way to dispose of this stuff? People could give the items away during their lifetime. That has many advantages, including the client watching the joy on the recipient’s face when receiving it. But often the client won’t want to part with the items during life.

If a person wants to wait until death, sometimes they may want to include a specific bequest for each item in their will or trust (if assigned to the trust). But there are several reasons that’s not the best solution. First, the person might change their mind from time to time. While they may want to give the stamp collection to Johnny today, next year they may decide to give the stamp collection to Becky who reveals herself a philatelist. If the stamp collection had been given as a specific bequest in the Trust, the Trust would need to be revised by visiting the attorney again. Next, the person might decide to make bequests of additional items that they didn’t have before or which they hadn’t thought to bequeath when they signed their estate planning documents.

For the foregoing reasons, it’s far better to handle these sorts of specific bequests through a “Bequeath of Special Gifts” which is inherent in every estate plan that I prepare. Such a document is a valid way to bequeath property and is flexible so that the person can, unilaterally change the document without having to amend the Trust or come to me. With the Bequeath of Special Gifts, the person would then list the items, indicating a description of the items and to whom the client is bequeathing the items.

Again, if the person changes their mind, they could simply change the list. If they thought of an additional bequest, again, they could simply add it to the list. Each time they made a change, they would initial and date each entry.

The use of the Bequeath of Special Gifts has many benefits, including its simplicity. Perhaps most of all, this method gives the person a sense of more direct control over their personal property and the items which might have the greatest emotional value to them.

Have you ever wondered why the dispositive instrument in which you express your wishes is called a “Last Will and Testament?” Few people, including Estate Planning attorneys, know the reason. In fact, the history is a little muddy. Occasionally, clients will ask this question. Now you’ll know the answer!

It’s thought that the “Last Will” part comes from English common in which the testator was expressing what they “willed” to have happen to their realty. It appears that, originally, this was intended for those without heirs. The laws at the time devised real property according to the bloodline. So, it was only when there was no bloodline a Last Will became relevant. The “testament” was the portion intended to transfer personal property.

The term became combined with “and Testament” after the Norman invasion of England by the French Duke of Normandy, who became known as William the Conqueror after the battle of Hastings (and his later coronation) in 1066. The old English common law and the French civil law became somewhat blended and the terms were combined for clarity.

In a recent episode of Jeopardy, the clue was “After the Norman Conquest, lawyers made sure they were clear with ‘Last Will (an Anglo-Saxon word) &’ this French-derived term?” The contestant correctly replied “Testament.”

The term dates back a millennium. But the document type is still in use to this day, as we know. Often it is combined with a Trust, to avoid the process of probate, among other reasons. A Will which sends the assets to a Trust is called a “Pour-Over Will.”

Next time one of estate planning comes up asks why a “Will” is called a “Last Will and Testament” you’ll have a story to tell, dating back nearly 1,000 years. And you can weave into the story the fact that people have been doing Estate Planning long before that. The Code of Justinian recognized Wills in ancient Rome. It’s likely dispositive instruments have existed long before that.